Abstract

This paper integrates traditional economic variables, soil properties, and variables on soil conservation technologies in order to estimate agricultural output among small-scale farmers in Kenya’scentral highlands. The study has methodological and empirical, as well as policy, implications.The key methodological finding is that integrating traditional economics and soil science is valuable in this area of research. Omitting measures of soil capital can cause omitted-variables biasbecause a farmer’s choice of inputs depends both on the quality and status of the soil plus other economic conditions, such as availability and cost of labor, fertilizers, manure, and other inputs.The study shows that models which include soil capital and soil conservation technologies yield a considerably lower output elasticity of farmyard manure, and that mean output elasticities of key soil nutrients, such as nitrogen and potassium, are positive and relatively large. Counter to expectations, the mean output elasticity of phosphorus is negative. Soil conservation technologies (green manure and terraces, for example) are positively associated with output and yield relatively large output elasticities.The central policy implication is that while fertilizers are generally beneficial, their application is a complex art, and more is not necessarily better. The limited local market supply of fertilizers, combined with the different output effects of nitrogen, potassium, and phosphorus highlight the importance of improving the performance of input markets and strengthening agricultural extension. Further, given the policy debate on the impact (and usefulness) of government subsidies on soil conservation, the resultssuggest that soil conservation investments contribute to an increase in farmers’ output. Consequently, government support for appropriate soil conservation investments arrests soil erosion, prevents downstream externalities, such as siltation of dams, rivers, and coastal zones, and helps farmers increase food production and food security.